I lead the consulting firm New Markets Advisors and am the author of Capturing New Markets: How Smart Companies Create Opportunities Others Don’t (McGraw-Hill, 2011). I have an unusual background that mixes strategy consulting and entrepreneurial ventures. On the consulting side, prior to leading New Markets I was a long-time colleague of Harvard Business School Professor (and innovation legend) Clayton Christensen in building his advisory practice. I also spent several years at Bain & Company. My entrepreneurial and corporate venturing background includes having responsibility for one of the first smartphone development programs, founding one of the first mobile marketing companies, co-founding the Mobile Marketing Association, and starting Africa's first mobile commerce firm. In addition to publishing frequently in print, I've had numerous radio and television appearances including on Bloomberg, CNN, and the BBC. I've also kept a foot in the academic community, recently through researching my book and previously via co-authoring works with Clayton Christensen. I was a Visiting Executive at Dartmouth’s Tuck School of Business. I have an MBA from Harvard Business School, a Master's in Public Administration from Columbia University, and a BA from Princeton University. I live near Boston, and previously have lived in the UK, Netherlands, Japan, Ecuador, and Zambia.

Seven Signs of a Successful Incubator

Corporate renewal is essential but immensely challenging. Today’s hot stock is often tomorrow’s humdrum company. Many companies address their growth gaps by establishing incubators for new efforts, and they struggle. One study of 300 such incubators found that only 47% met their strategic goals and 24% met their financial goals. What makes for a successful incubator?

Begin by recognizing that incubation is hard. Incubators tend to be small units in much larger firms, addressing a universe of possibility with scant resources. They get stretched too thin, become captured by core business units, pursue irrelevant ideas, or all of the above. Moreover, they pursue inherently medium and long-term growth initiatives in a climate that usually values hitting short-term financial targets, and so they are prime candidates for cost-cutting when inevitable budget crunches arise.

Yet when incubators succeed, the results can be spectacular. IBM has created over $15 billion in new annual revenues through its Emerging Business Opportunities organization. Royal Dutch Shell estimates that 40% of its upstream R&D begins through its GameChanger program. DuPont’s Market Driven Innovation program, staffed with just six people, built $500 million of revenues in 6 years. The opportunity in these numbers can’t be ignored.

Ascension Health, America’s third-largest hospital system, has worked on incubation since 2008. As a non-profit containing 80 Catholic hospitals, each using its own name in its local market, Ascension is at the frontlines of change in the healthcare economy. The organization’s experience along seven dimensions of incubator design shows the way for others seeking success.

1. Know your archetype – Too often, companies try to become more innovative by benchmarking firms like Apple, Google, and Samsung. The problem is that these companies are completely different. The way management exercises control, the process-driven culture, the ability to experiment freely, and several other variables dictate what companies can and cannot let incubators do. (See this special report I wrote in Forbes on four distinct innovation archetypes) Ascension recognized that it is inherently decentralized, and that progress in hospitals often starts small, at the grassroots. Its Innovations Accelerator fits that archetype; it does not push out unwelcome models from the center to the rest of the organization, but rather it spots new ideas in hospitals and enables others to adopt them quickly.

2. Set a clear mandate – A major cause of incubator failure is the lack of a well-defined strategic mandate. A mandate protects an incubator against an influx of pet projects, and it gives collective coherence to individual projects requiring flexibility. For Ascension, the mandate is to reinforce the organization’s position as a leader in “human-centered care” — not going toe-to-toe with institutions such as Massachusetts General on hard-core medical research, but rather being at the forefront of how to work effectively with the softer, human side of healthcare. The mandate has led the organization to cluster activities in areas such as mobile apps and use of social networks, not just building neat apps but looking deeply at what makes use of these systems sustainable.

3. Relationship to the core – According to Scott Lambert, Ascension’s Senior Director of R&D, “It was a hard, expensive lesson to learn that we should be a catalyst, not a developer.” The Innovations Accelerator engages with the broader organization, making its relevance clear to other stakeholders and aligning them for its success. In other industries, such as software or consumer products, it is perfectly possible to sequester a half dozen people in a basement to churn out the next great invention. I know one consumer products incubator housed in a former morgue. But in industries such as healthcare or financial services it can be essential to integrate closely with the rest of the company if ideas are to have a hope of being commercialized. Ascension’s Accelerator is also “a nexus for external opportunities,” Lambert says. For instance, the group created AH Connect, an effort with Best Buy targeting people with diabetes. Piloted at stores in Indianapolis and Detroit, the effort provided remote monitoring equipment and professional medical counseling to patients in their own homes, so that they could better manage their disease and reach out to their primary physicians at the right times.

4. Capabilities – Given the clarity around its mandate and role in the organization, the Innovations Accelerator could concentrate on building excellence in a handful of key areas. The organization would help to test new ideas and advise hospitals on scaling them up, so it needed to be outstanding at designing pilots for maximum learning and at extracting lessons in a methodical way. The Accelerator works with a unit called the Living Lab that tests external ideas fast and determines which ones to adopt within the hospital network.

5. Processes – With the above building blocks in place, Ascension can be purposeful in where and how it embraces processes. The front end of the funnel is flexible, but subsequently the team looks at each opportunity through set mechanisms. The idea is to winnow ideas quickly so that the small unit does not “chase too many ideas,” according to Lambert. The unit has also learned to adapt the way in engages with external partners. Michael McGarry, head of the Living Lab, says that “larger partners are more process-driven and conscious of PR. Small ones are resource-constrained. We have to be flexible if we’re to work effectively with both kinds.”

6. Metrics – Too many heads of innovation programs lack clear metrics for success. Accordingly, they grasp for projects that will please stakeholders even if the resulting portfolio lacks cohesion and spreads energies too thin. Ascension has determined a narrow but diverse set of metrics around factors such as engagement of its associates, value generation, and impact on the poor and vulnerable.

7. Resourcing – Frequently, incubators start with a notion of who will staff them, then they back into the other factors listed above. Sometimes this is simple necessity, but the process can be backward and lead to an incubator reflecting the strengths of predetermined individuals rather than the overarching needs of an organization. Likewise, the availability of staff can lead to decisions around incubator size. At Ascension, the Accelerator is staffed by 5-6 people — not many for an organization with over $15 billion in revenue. Yet, given the unit’s mandate of being a catalyst and test bed, the numbers work.

Incubation is never easy. It creates ideas that internal stakeholders may resist, and it necessarily rocks the boat. But if an organization can succeed at it while operating in a topsy-turvy healthcare system, across 80 locations, and through independent-minded physicians, the promise of incubation should be tough to resist. The work is difficult, but the impacts can be huge.

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